Entitled no matter what - the sequel

June 24, 2014

As set out in the last issue of agentlaw news, it is possible with careful planning at the outset of an agency relationship to limit the agent’s entitlements on termination to commission on orders placed both before and a reasonable period of time after termination.

However, unfortunately for principals but fortunately for agents, it is not possible to exclude all entitlements. Regulation 17 payments (a lump sum indemnity or compensation) cannot be disapplied by agreement “to the detriment of the commercial agent” before termination (Regulation 19).

Nor can the provisions relating to notice payments. The parties can agree a longer period of notice but not a shorter period.

But are there any other claims that an agent can make that might come as a surprise to a principal?

In short – yes. Regulation 11 sets out that where an order has been accepted by a principal, then if that order is not fulfilled the agent will still be entitled to commission in some circumstances. The Regulations state clearly that you cannot contract out of this entitlement.

What are these circumstances? It depends on whether the reason the order is not going to happen is due to a reason for which the principal is to blame.

At present, there is no case law on what this means. However, we consider that where there are returns/non delivery because of:

the principal fails to process the order properly;

quality problems;

problems with fit;

orders are delivered short because of manufacturing issues; or

orders are delivered late,

then these are very likely to be judged the fault of the principal.

In contrast situations which are most likely not a principal’s fault include:

refusal to supply because of payment issues with the customer;

products being lost, for example, falling off a ship/train/lorry – unusual but not the principal’s fault; and

a customer going bust.

Therefore, if the principal has issued a high value of credit notes or has waived payment of significant invoices then an agent could have a substantial claim for unpaid (back) commission. The right to claim for back commission exists for at least 6 years after the entitlement to payment, that is the occurrence of the failure to fulfil the order.

Principals often find back commission conceptually difficult. Some principals speak of “industry norms” where it is widely accepted that a certain proportion of orders will not be fulfilled. But the fact of wide acceptance does not constitute a barrier to back commission being claimed by the agent.

Other principals may argue that they are being asked to pay commission on an order where they have effectively made no profit.

Generally, agents will have good records of the commission that they have been paid and conversely the commission they have not received. However, a credit note may not on its face explain why the order has been cancelled.

For principals keeping a clear record of the reason for non-fulfilment could act as a double edged sword but may be a sensible approach to take. If an agent brings a claim, then it could save a great deal of time and effort. Another record keeping nightmare could also be the issue as to whether the same order has been replaced. In this situation would a payment represent a double recovery by the agent?

In this situation an agent may be able to rely upon Regulation 12 to obtain copies from the principals records to check his position. Therefore, already having a clear record, particularly if it shows both parties the merit and value of the claim may be its own reward.

Entitled no matter what? Yes but with careful planning and assistance, principals can limit the worst of their exposure to agents.